Market Watch

Alan Brugler is the President of Brugler Marketing & Management, and the primary analyst and advisor.

Things Have Changed!

Oct 19, 2012

Market Watch with Alan Brugler

October 19, 2012

Things Have Changed!

News networks were highlighting the 25th anniversary of the 1987 stock market crash on October 19. The focus was on the huge percentage losses in stock values that day around the world. The Dow Jones average lost more than 22.6% in one day, down 508 points to 1738.74. The futures exchanges were not immune, with over a billion dollars in margin calls to be collected and tense negotiations to make sure they had access to enough capital to stay open. Price changes since then have been revealing. In nominal dollars (not inflation adjusted), corn futures are up 406% since that date in 1987. Soybeans are up 280%. Nearby Chicago wheat is up 283%. Nearby cattle futures are up 184%. The Dow? Using the same Monday morning pre-crash value as the others, it is up 594%. Despite the crash on Black Monday, and the 2008/09 debacle, those 30 stocks have still outstripped commodity prices in dollar terms.

Corn futures worked 1.2% higher for the week, a 9 cent gain after a nickel gain the previous week. Weekly export sales were again very weak at only 166,700 MT. Average daily ethanol production dropped from the previous week. Ethanol weekly production slowed down. Ethanol stocks dropped to 19 million barrels despite the largest weekly import total since record keeping began in June 2010. Consulting firm Informa projected that 2013 US corn plantings will total 97.5 million acres, up less than a million from the current year.

Soybeans rose 0.77%, or 12 cents per bushel for the week. They posted several strong days before giving back a little on Friday due to profit taking. Weekly export sales were modest at 523,700 MT for both 2012/13 and 2013/14.The Argentine government is now estimating soy production at 55 to 58 MMT for 2013, with USDA at the lower end of that range. Informa guesstimated 2013 US soybean acreage at 79.987 million, a record total if it happens. If the South American crop turns out as large as advertised, and if the US plants that large of a crop, and if US yields return to trendline, the train wreck potential expands exponentially for prices! That is a lot of "ifs", however.

All three wheat markets were higher this week, with Chicago posting the biggest gain after being the weakling the previous week. Weekly export sales improved, beating expectations at 410,000 MT. On Friday, a wire report indicated that Ukraine may run out of exportable wheat by mid to late November. That supported prices because of the potential impact on US exports in December. There was a 230,000 MT export sale announced to "unknown" on Friday as well. Dust storms in the Plains were severe enough to close interstate highways, and could result in some localized blowouts or soil drifting. Soil conservation practices are of course much, much better than they were in the 1930’s. Consultant Informa is projecting 2013 US wheat acreage at 56.8 million, up about a million acres from this year.

Nearby cotton futures shot up 7.7% this week, re-affirming the old trade axiom to "never sell a sleeping market". USDA put export sales at 206,200 RB for 2012/13 with net sales for 2013/14 at 13,200 RB for Upland Cotton or right at the upper end of trade guesses. Pima net sales were 2,700 RB. You couldn’t really point to known export sales for the rally. Potential for a squeeze in December futures got some play, with

Commodity

Weekly

Weekly

Month

09/28/12

10/05/12

10/12/12

10/19/12

Change

% Change

Dec

Corn

$7.56

$7.48

$7.53

$7.62

$0.09

1.16%

Dec

CBOT Wheat

$9.03

$8.58

$8.57

$8.73

$0.16

1.84%

Dec

KCBT Wheat

$9.28

$8.78

$8.90

$9.06

$0.15

1.71%

Dec

MGEX Wheat

$9.59

$9.18

$9.24

$9.38

$0.14

1.49%

Nov

Soybeans

$16.01

$15.52

$15.23

$15.34

$0.12

0.77%

Dec

Soybean Meal

$486.90

$471.20

$465.20

$463.80

($1.40)

-0.30%

Dec

Soybean Oil

$52.66

$51.19

$50.67

$51.58

$0.91

1.80%

Oct

Live Cattle

$122.08

$123.05

$123.90

$126.30

$2.40

1.94%

Oct

Feeder Cattle

$143.80

$144.83

$143.10

$146.15

$3.05

2.13%

Dec

Lean Hogs

$73.75

$76.55

$78.37

$79.63

$1.26

1.60%

Dec

Cotton

$70.65

$71.49

$71.36

$76.88

$5.52

7.74%

Dec

Oats

$3.71

$3.67

$3.92

$3.94

$0.02

0.57%

Nov

Rice

$15.48

$15.11

$15.03

$15.02

($0.01)

-0.03%

Cattle futures rose a sharp $2.40/cwt. this past week, pulled higher by rising beef product value and light slaughter. While packers have been somewhat successful at backing cattle into the October marketing "hole" the numbers are still on the light side and even steady demand firms prices. The Cattle on Feed report showed slightly smaller October 1 numbers than the trade expected pre-report, at 97.4% of year ago. The cash cattle market was mostly $1-2 higher for the week in the live cattle. Sales hit $127 in Texas and KS, with $202 in the dressed. NE was $197-198 in the dressed. Wholesale beef prices were sharply higher, with choice cutouts up 2.6% for the week. Select product was up 1.9% on a Friday/Friday basis. Estimated beef production for the week was down 0.7% from the same week in 2011, and tonnage for 2012 YTD is 2.0% below last year. Weekly export sales at 14,500 MT were down slightly from the previous week.

Hog futures rose another 1.6% this week after a 1.75% rise the week before. This is the 6th week of strong gains. Estimated pork production for the week was down 0.2% from the previous week, and up 1.5% from the same week in 2011. Pork production YTD is up 2.4%. Estimated carcass weights are down 4 pounds from last year, which is offsetting the larger slaughter numbers. The pork carcass cutout value rose 2.3% for the week on a Friday/Friday basis, led by ribs and loins. The increasing product value allowed cash hogs and the CME Lean Hog Index to rise, taking futures with them.

Market Watch:

Cattle traders will begin the week reacting to Friday evening’s Cattle on Feed report. The market will continue to be interested in US export sales progress, with questions about whether corn sales are running too slow, and questions about whether soybean sales are running too fast (to hit USDA projections for the year).USDA will release the weekly export inspections report on Monday morning, and weekly Export Sales on Thursday morning. Harvest is rapidly coming to a close and becoming less of a market factor. USDA will release an update on Monday at 3:00 pm CDT. The main monthly report for the week is the Cold Storage report on Monday evening. The Fed Open Market Committee is scheduled to meet on Tuesday and Wednesday, with the potential to do something market moving although no new initiatives are expected. Feeder cattle options and futures will expire on Thursday. November grain options will expire on Friday the 26th.

There is a risk of loss in futures and options trading.Such trading is not appropriate for all individuals. Past performance is not necessarily indicative of future results.Comments made in this article are in no way to be seen as an endorsement of futures and options trading. Reproduction or rebroadcast of any portion of this article without written consent of Brugler Marketing & Management LLC is strictly prohibited.Call 402-697-3623 for information on our individualized subscription and consulting services. Visit our web site at https://www.bruglermarketing.com for more information on our consulting and advisory services for farm family enterprises and agribusinesses.